The role of the internal audit in the Armed Forces and its influence on organisational sustainability: a case study

Ferreira, Pedro; Samagaio, António; Diogo, Tiago Rodrigo

doi:10.7819/rbgn.v26i02.4263

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Revista Brasileira de Gestão de Negócios

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Article • Rev. Bras. Gest. Neg. 26 (2) • 2024 • https://doi.org/10.7819/rbgn.v26i02.4263 copy

The role of the internal audit in the Armed Forces and its influence on organisational sustainability: a case study

Authorship SCIMAGO INSTITUTIONS RANKINGS

Abstract

Purpose

This paper develops a case study focusing on the Portuguese Air Forces, first to identify the roles of the internal audit (IA) and then to analyse its influence on organisation sustainability, while also exploring the moderating effect of human resource management practices (HRMPs).

Theoretical framework

This research draws on empirical work on the roles and activities performed by IA in the private sector and human capital theory to assess the effect of HRMPs on performance.

Design/methodology/approach

The study uses the survey method and data were collected through a questionnaire made available on an online platform. The study applies an ordinary least squares regression model.

Findings

This study shows that IA provides assurance and advisory services and that IA is positively related to sustainability orientation, particularly in the governance and social dimensions. The moderating effect of HRMPs is felt only in the environmental dimension.

Practical & social implications of research

This study reinforces the literature on the relationship between IA effectiveness and sustainability, provides insights into the effectiveness of IA as reported by auditors themselves, identifies the portfolio of functions performed by IA, and points to improvements to be made in IA management.

Originality/value

The topics studied are explored for the first time in the context of the Armed Forces, and the analysis of the moderating effect of HMRPs on the relationship between IA and sustainability is pioneering.

Keywords:
Internal audit; sustainability; human resource management practices; Armed Forces

Research objectives	Questionnaire questions (Appendices)
Objective one	^{Appendices A} APPENDIX A POLICIES AND DOCUMENTS Question: Which of the following internal audit documents or policies exist in your organization? (choose all that apply) Code Indicators Frequency PD_1 Internal audit charter 0 PD_2 Mission statement for the internal audit department 0 PD_3 Internal audit operating manual 1 PD_4 Internal audit strategy description 1 PD_5 Code of conduct/ethics 1 PD_6 Description of key performance indicators (KPIs) 1 PD_7 None 2 to ^F APPENDIX F INTERNAL AUDIT DEFINITION Question: Considering the internal audit function in your organization, what is your view about the relevance of each of the following functions? (1 = strongly disagree; 5 = strongly agree) Code Indicators IAD_1 Internal audit is an independent objective assurance and consulting activity in my organisation IAD_2 Internal auditing adds value and improves the organisations operations IAD_3 Internal audit brings a systematic and disciplined approach to evaluate and improve the effectiveness of risk management IAD_4 Internal audit brings a systematic and disciplined approach to evaluate and improve the effectiveness of control IAD_5 Internal audit brings an approach to evaluate and improve the effectiveness of corporate governance processes
Objective two (hypothesis 1)	^{Appendices G} APPENDIX G SURVEY ITEMS USED FOR INDEPENDENT VARIABLES Question: Please indicate the agreement degree with the following statements? Please answer according to your perception about the Internal Audit performance in the Portuguese Air Force. (1 = strongly disagree; 5 = strongly agree) Code Indicators Mean Median SD Skewness Kurtosis IAE_1 IA is aware of and sensitive to the organisation’s needs and operates accordingly 3.80 4 0.964 -1.454 2.727 IAE_2 The evaluation of IA reports made by individuals in managerial positions who were audited is positive 3.80 4 0.833 -1.217 2.924 IAE_3 The evaluation of IA reports made by individuals in operative positions who were audited is positive 4.03 4 0.747 -0.496 0.285 IAE_4 The evaluation of IA reports made by external auditors and other external authorities is positive 3.89 4 0.718 -0.331 0.252 IAE_5 IA identifies risks and competently assesses the adequacy and effectiveness of internal control systems 4.00 4 0.686 -0.580 1.153 IAE_6 IA gets the attention of top management and focuses it on issues audited by IA 3.37 4 1.031 -0.316 -0.590 IAE_7 The issues to be audited are decided after identifying risks, quantifying them and determining appropriate risk levels 3.66 4 0.838 -1.484 2.422 IAE_8 All control and auditing activities in the organisation are performed by IA or are coordinated with IA, including external auditing 3.49 4 1.147 -0.707 0.002 IAE_9 IA is an autonomous and independent organisational unit 3.83 4 0.985 -0.812 0.713 IAE_10 The IA department and its military are reliable and behave with integrity 4.31 4 0.796 -2.128 7.829 IAE_11 The IA department is valued by management and makes valuable contributions during meetings 3.63 4 0.910 -0.902 1.041 IAE_12 IA is a source of valuable data and information for the decision-makers in the organisation 4.17 4 0.747 -0.294 -1.106 IAE_13 The information provided by IA is vital to organisational operations 3.97 4 0.857 -0.836 0.551 IAE_14 The costs of IA to the organisation are higher than the benefits and savings that result from its work (Reverse scored.) 4.23 4 0.731 -0.869 1.158 IAE_15 All auditing functions that were approved in the auditing plans are performed completely 3.74 4 0.950 -0.754 0.824 IAE_16 In addition to the issues determined and approved for inclusion in the annual audit, there are requests to the IA department to audit other issues 3.83 4 0.822 -0.675 0.382 IAE_17 The number of complaints about the IA department is very low 3.89 4 0.758 -0.232 -0.206 IAE_18 Those who are audited demonstrate a high level of satisfaction with the work of the IA department 3.63 4 0.770 -1.279 3.078 IAE_19 The time that passes between completing the audit and submitting the final report is too long (Reverse scored.) 3.29 4 1.152 -0.112 -1.215 IAE_20 The findings of internal audits are very significant for the organisation 4.03 4 0.857 -0.651 -0.007 IAE_21 The findings of internal audits are always based on documents and reliable data 4.31 4 0.676 -0.479 -0.697 IAE_22 The recommendations of the IA department can be easily implemented 3.29 3 0.789 -0.569 -1.140 IAE_23 The recommendations of the IA department provide practical, cost-benefit solutions for correcting the problems that were found 3.57 4 0.778 -1.445 2.639 IAE_24 Only a small portion of the IA department’s recommendations is implemented (Reverse scored.) 3.00 3 0.907 -0.250 -1.214 IAE_25 The IA reports are rigorous and accurate 3.94 4 0.802 -0.256 -0.523 IAE_26 The IA reports are clear and well presented 4.20 4 0.584 -0.038 -0.163 IAE_27 The IA reports include an introduction, goals, subjects, conclusions and recommendations 4.06 4 0.802 -0.831 0.842 IAE_28 The IA reports are professional and of high quality 4.09 4 0.853 -1.376 3.693 IAE_29 The management’s decision-making process is strongly affected by the reports and findings of the IA department 3.14 3 0.810 0.079 1.248 IAE_30 The IA department contributes to the organisation above and beyond its operating costs 3.71 4 0.789 0.187 -0.673 IAE_31 IA improves organisational performance 4.17 4 0.618 -0.906 3.558 IAE_32 IA develops appropriate annual audit plans 4.09 4 0.612 -0.041 -0.151 IAE_33 Timely action is taken to implement the recommendations of the IA reports 3.51 4 0.612 -0.057 -0.237 IAE_34 IA provides adequate follow-up to ensure that appropriate corrective action is taken and that it is effective 3.83 4 0.707 -1.335 2.438 and ^I APPENDIX I SURVEY ITEMS USED FOR DEPENDENT VARIABLES Question: How important are the following issues in the management of the Portuguese Air Force? (1 = not important at all, 5 = extremely important) Dimension Code Indicators Mean Median SD Skewness Kurtosis ENV ESG_1 Procurement of environmentally friendly materials 3.46 3 0.886 0.003 -0.612 ESG_2 Energy usage 3.74 4 0.886 -0.530 -0.202 ESG_3 Materials usage 3.54 4 0.886 -0.272 -0.554 ESG_4 Greenhouse gas emissions 3.26 3 1.094 -0.119 -0.445 ESG_5 Hazardous waste management 4.00 4 0.907 -0.751 0.028 ESG_6 Water management 3.74 4 0.919 -0.172 -0.766 ESG_7 Impacts on biodiversity 3.40 3 1.006 0.199 -0.963 ESG_8 Climate risk 3.26 3 0.950 0.099 -0.964 SOC ESG_9 Occupational health and safety 3.94 4 1.259 -1.106 0.415 ESG_10 Military retention and turnover 3.57 4 1.378 -0.515 -1.099 ESG_11 Training and education of military 3.77 4 1.031 -0.193 -1.164 ESG_12 Supply chain issues 3.51 4 1.040 -0.540 0.360 ESG_13 Human rights issues 3.40 3 1.117 -0.473 0.060 ESG_14 Community impacts and relations 3.34 3 0.802 -0.358 1.307 ESG_15 Donations and other humanitarian actions 3.09 3 0.887 -0.711 -0.149 ESG_16 Mission management (national and international) 3.89 4 0.932 -0.917 1.401 ESG_17 Mission privacy 3.69 4 1.051 -0.767 0.704 ESG_18 Data privacy and security 4.09 4 0.887 -0.711 -0.149 GOV ESG_19 Governance structure 3.77 4 0.770 0.017 -0.511 ESG_20 Organisation culture 3.74 4 0.980 -0.238 -0.911 ESG_21 Ethics 3.94 4 1.110 -1.114 1.017 ESG_22 Conflicts of interest 3.57 4 1.092 -0.624 0.078 ESG_23 Remuneration structures and incentive systems 3.34 3 1.392 -0.245 -1.227 ESG_24 Diversity and equal opportunity 3.11 3 1.367 0.002 -1.125 ESG_25 Stakeholder dialogue 3.31 3 1.207 -0.227 -0.650 ESG_26 Risk management 3.80 4 0.964 -0.618 0.582 ESG_27 Strategic risks 3.69 4 1.105 -0.572 0.123 ESG_28 Corruption and bribery 3.86 4 1.033 -0.717 0.230 ESG_29 Anti-money laundering 3.77 4 1.003 -0.252 -1.000 ESG_30 Fraud 3.89 4 0.932 -0.455 -0.575 ESG_31 Whistleblower schemes 3.63 4 1.239 -0.805 -0.240 ESG_32 Intellectual property protection 3.54 4 1.146 -0.484 -0.365
Objective three (hypothesis 2)	^{Appendix H} APPENDIX H SURVEY ITEMS USED FOR MODERATOR VARIABLES Question: Please indicate the agreement degree with the following statements. Please answer according to your perception. ESG (Environmental, Social and Governance) refers to the three dimensions of sustainability: environmental, social and governance. (1 = strongly disagree; 5 = strongly agree) Code Indicators Mean Median SD Skewness Kurtosis HRMP_1 The organisation develops training programs in ESG management to increase ESG awareness, skills and expertise of military 2.77 3 0.973 -0.323 -0.810 HRMP_2 The organisation has integrated training to create the emotional involvement of military in ESG management 2.66 3 0.838 -0.531 -0.090 HRMP_3 The organisation has ESG knowledge management (link ESG education and knowledge to behaviours to develop preventative solutions) 2.74 3 0.919 -0.172 -0.766 HRMP_4 The organisation uses ESG performance indicators in the performance management system and appraisals 2.94 3 0.938 -0.109 -0.343 HRMP_5 The organisation sets ESG targets, goals and responsibilities for managers and other military 2.97 3 0.954 -0.371 0.001 HRMP_6 In the organisation, managers are set objectives on achieving ESG outcomes included in appraisals 2.94 3 1.056 -0.358 -0.622 HRMP_7 In the organisation, there are dis-benefits in the performance management system for non-compliance or not meeting ESG management goals 2.74 3 0.950 -0.536 -0.461 HRMP_8 The organisation has a clear developmental vision to guide the military’s actions in ESG management 2.89 3 0.932 -0.224 -1.006 HRMP_9 In the organisation, there is a mutual learning climate among military for ESG behaviour and awareness in Portuguese Air Force 3.09 3 1.011 -0.361 -0.812 HRMP_10 In the organisation, there are a number of formal or informal communication channels to spread ESG culture in Portuguese Air Force 2.91 3 0.981 -0.018 -0.735 HRMP_11 In the organisation, military are involved in quality improvement and problem-solving on ESG issues 3.03 3 1.124 -0.322 -0.725 HRMP_12 The organisation offers practices for military to participate in ESG management, such as newsletters, suggestion schemes, problem-solving groups, low-carbon champions and ESG action teams 2.57 3 0.979 -0.012 -0.940 HRMP_13 The organisation emphasises a culture of ESG protection 2.83 3 0.985 -0.420 -0.771

	Model 1		Model 2		Model 3		Model 4
	B	t	B	t	B	t	B	t
Constant	-4.424	-0.158	6.330	0.866	-3.074	-0.369	-7.680	-0.529
IAEG	1.412	3.394***	0.180	1.654	0.500	4.026***	0.732	3.386***
HRMP	0.329	0.850	0.213	2.095**	0.034	0.292	0.083	0.412
MODG	4.047	1.435	1.448	1.962*	1.312	1.559	1.288	0.878
R²	0.392		0.337		0.429		0.351
Adjusted R²	0.333		0.273		0.373		0.289
F-stat	6.664***		5.258***		7.756***		5.598***

	Model 5		Model 6		Model 7		Model 8
	B	t	B	t	B	t	B	t
Constant	-4.138	-0.140	7.135	0.903	-2.208	-0.246	-9.065	-0.589
IAE1	2.077	2.105**	0.147	0.559	0.630	2.11**	1.300	2.535**
IAE2	0.627	0.572	0.169	0.578	0.266	0.801	0.192	0.337
IAE3	1.269	0.780	0.319	0.735	0.527	1.069	0.424	0.501
HRMP	0.174	0.411	0.166	1.469	0.005	0.042	0.003	0.013
MOD1	-5.486	-1.120	-1.691	-1.296	-1.439	-0.971	-2.356	-0.926
MOD2	9.283	1.575	3.046	1.939*	2.346	1.315	3.891	1.271
MOD3	3.955	0.880	1.144	0.956	1.538	1.131	1.272	0.545
R²	0.501		0.435		0.516		0.468
Adjusted R²	0.371		0.288		0.391		0.330
F-stat	3.865***		2.967**		4.12***		3.388**

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